By the end of February 2024, commercial banks in Cameroon held 56% of Chad’s debt securities on the CEMAC (Central African Economic and Monetary Community) money market, managed by the BEAC, the region’s central bank. According to IMF report 24/335, the Chadian government has become increasingly reliant on Cameroonian banks, “which have purchased virtually all the additional net issuance since 2022.”

This trend is due to the inability of Chadian banks to meet their government’s financial needs. At the end of 2023, required capital levels for loans in Chad were negative (-1.4%). Non-performing loans, where repayment is uncertain, made up 31.5% of total loans granted by Chadian banks.

While Chadian banks have strong short-term liquidity (135%), they struggle to keep up with Chad’s focus on issuing medium- and long-term debt (Treasury bonds) in the CEMAC market. By July 2024, these bonds accounted for 84% of Chad’s issued debt in the region, up from 54% in 2021. Only financial institutions with sufficient funds, many of which are in Cameroon, can participate in these bond purchases.

The Cameroonian banking sector, though facing local challenges, is generally in good shape. Its capital ratio improved from 10.8% in 2018 to 15.3% in December 2023. The share of risky loans has stabilized at 12.9% in 2023 after peaking at 14.1% in 2021. Higher revenues have also helped reduce operating costs to 60% of total income in 2023, down from a high of 96.6% in 2019.

Profitable but Risky Opportunities

Chad’s limited access to local bank funding has driven up returns on its debt. Short-term Treasury bills yield 7.5%, while long-term Treasury bonds offer returns as high as 13.5%. While Cameroonian banks can take advantage of these opportunities, the risks are significant.

Chad’s economy depends heavily on oil, but production and global oil prices are declining. By the end of 2023, Chad owed $401 million (about CFA250.4 billion) to its neighbors Cameroon, Congo, and Equatorial Guinea as well as to BDEAC. IMF experts note that repayments are inconsistent, with only Cameroon expecting to receive payments soon.

Overall, Cameroonian banks are highly exposed to government loans in the CEMAC region. In 2023, total credit in the sector rose by 13.1%, reaching CFA5,612 billion. Of this amount, CFA3,402 billion (60.6%) went to governments, particularly in Congo, Chad, and Gabon.

Source: Business in Cameroon